Sri Lanka's Standard Chartered Bank, Citibank, Deutsche Bank and two local banks sold complex leveraged options positions to state-run Ceylon Petroleum Corporation which resulted in large losses to the retailer when oil prices crashed in mid 2008.

The central bank which is the banking regulator said the deals were 'tainted'. CPC stopped payments under the contracts.

Standard Chartered Bank took the case to court in London over non-payment while Citi and Deutsche Bank went for arbitration.

Sri Lanka's Daily FT newspaper said the fine involved a transaction of 121 million US dollars and it came as the Standard Chartered case was taken up for hearing. The proceedings started on March 28.

Under Sri Lanka's exchange control laws, the fine can be appealed to the finance minister, who is President Mahinda Rajapaksa.

"We will vigorously defend our position in this matter," the newspaper quoted Standard Chartered Bank Sri Lanka CEO Anirvan Ghosh Dastidar as saying in a statement.

"As it is a matter between the bank and the regulator, it would be inappropriate for us to comment further."

Sri Lanka's exchange control department is a unit of the Central Bank. The laws were brought in 1953 shortly after a central bank was created and attempts to control both interest rates and exchange rates failed and the country ran short of foreign reserves.